Lease Maturity and Initial Rent: Is There a Term Structure for UK Commercial Property Leases?

  • Shaun A. Bond
  • Pavlos Loizou
  • Patrick McAllister
Article

DOI: 10.1007/s11146-007-9096-9

Cite this article as:
Bond, S.A., Loizou, P. & McAllister, P. J Real Estate Finan Econ (2008) 36: 451. doi:10.1007/s11146-007-9096-9

Abstract

Seminal work by Grenadier (J. Financ. Econ. 38:297–331, 1995) derived a set of hypotheses about the pricing of different lease lengths in different market conditions. Whilst there is a compelling theoretical case for and a strong intuitive expectation of differential pricing of different lease maturities, to date the empirical evidence is inconclusive. Drawing upon a substantial database of commercial lettings in central London (West End and City of London) over the last decade, we investigate the relationship between rent and lease maturity. In particular, we test whether building quality, credit risk and micro-location variables omitted in previous studies provide empirical results that are more consistent with the theoretical and intuitive a priori expectations. It is found that initial leases rates are upward sloping with the lease term and that this relationship is constant over time.

Keywords

Term structure of leases Office rents London 

JEL Classifications

R33 C20 

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  • Shaun A. Bond
    • 1
    • 2
  • Pavlos Loizou
    • 3
  • Patrick McAllister
    • 4
  1. 1.Department of Land EconomyUniversity of CambridgeCambridgeUK
  2. 2.The Smeal College of BusinessThe Pennsylvania State UniversityState CollegeUSA
  3. 3.Global Corporate ServicesCB Richard Ellis LtdLondonUK
  4. 4.Department of Real Estate and PlanningThe University of ReadingReadingUK

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